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Friday, August 5, 2016

OIL and ONGC pay differential royalty to Assam

PUBLIC sector oil companies- Oil India Limited and ONGC on August 4 made a payment to the government of Assam, towards differential royalty on pre-discount price for the period from Feb 1, 2014 to March 31, 2016. Whereas OIL paid Rs. 1,149.24 crore and the amount paid by ONGC is Rs. 300.64 crore, said an official release.
The cheques were handed over by... the CMDs of ONGC and OIL to the Chief Minister of Assam Sarbananda Sonowal at New Delhi, in the presence of Minister of State for Petroleum and Natural Gas, Dharmendra Pradhan and other dignitaries.
Speaking on the occasion, the Petroleum and Natural Gas Minister said that injustice was being done to Assam due to political reasons in the payment of royalty. He said the differential royalty being paid was Assam’s right. Pradhan said that the natural resources of a place belong to the people living there and, hence, it was proper that full royalty should be paid to Assam for the oil explored there. He said that this gesture will provide the feel-good factor and improve cooperation between the oil companies and Assam.
Assam Chief Minister Sonowal thanked the Petroleum & Natural Gas Minister for releasing the amount due to it in a single installment. He said that Assam is suffering from a natural disaster and is in acute need of funds. He also thanked the Oil PSUs for contributing Rs. 15 crore towards the CM Relief Fund from their CSR initiative.
As per statutory provisions, royalty on production of crude oil in the state of Assam is paid by ONGC and OIL to Assam Government. Effective from 2008-09, the royalty to all state governments including Assam was being paid on post-discount price of crude oil realized by ONGC and OIL from the PSUu Oil Marketing Companies (OMCs).
In view of the litigation arising out of the loss of royalty to state governments due the discounts being provided by the ONGC and OIL to public sector OMCs and interim decision of the Supreme Court dated Feb 13, 2014, the petroleum ministry decided that ONGC and OIL will pay royalty to all crude oil producing states at pre-discount prices effective Feb 1, 2014.
With this order, Assam stands to get more than Rs 1,400 crore as additional royalty from ONGC/OIL. Andhra Pradesh will get about Rs 92 crore extra royalty from ONGC due to this decision.
According to the Oil Field Act, ONGC/OIL are required to pay 20 per cent royalty on price of crude oil it extracts from onland oil blocks to the state governments.
ONGC till 2004 paid royalty on gross billing. But, in 2004, the Union government asked it to provide crude to refiners like Indian Oil Corp Ltd at discount as per burden- sharing mechanism.
Since then ONGC paid royalty on discounted price, resulting in reduction of royalty paid to Gujarat and other states. The state also complained to the Centre in this regard.
Gujarat government in 2011 filed a petition before the High Court, stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at pre- discount rate (in comparison to market rate) was computed at Rs 9,000 crore to Rs 10,000 crore. The High Court ruled in its favour in November 2013 prompting other states like Assam to demand likewise.